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Supes Reimpose Cannabis Tax 

With $14 million in outstanding bills, board tasks staff with enforcement plan

click to enlarge A 2022 rally calling on the Humboldt County Board of Supervisors to repeal Measure S.

File photo

A 2022 rally calling on the Humboldt County Board of Supervisors to repeal Measure S.

Humboldt County cannabis farmers have had a brief reprieve from half of Benjamin Franklin's famous adage that nothing is certain in life except death and taxes, but that will soon come to an end.

The Humboldt County Board of Supervisors voted unanimously Oct. 3, with Second District Supervisor Michelle Bushnell recused, to resume collecting an excise tax on the county's approximately 1,100 licensed cannabis farmers for the 2024 cultivation year, with the bills — slashed to just 10 percent of the maximum allowed — coming due in 2025. Potentially more daunting for the industry, the same vote directed staff to come back with proposals for enforcement mechanisms to help the county collect more than $14.1 million in unpaid excise taxes.

County Administrative Officer Elishia Hayes introduced the question of what should be done about ongoing implementation of the tax enacted by Measure S, which passed in 2016 and imposes taxes on farms of up to between $1 and $3 per square foot of cultivation space, depending on whether it's outdoor, mixed light or indoor. Hayes reminded the board that it had taken several actions to relieve the tax burden on cannabis farmers as the wholesale market plummeted, reducing the tax by 85 percent in February of 2022 before voting nine months later to suspend it entirely for two years.

At the same time, Hayes said, the board deferred all outstanding payments to this month in order to "give a little bit of a reprieve for folks to get caught up if they had any outstanding balances."

But that largely hasn't happened, according to a staff report, which notes that since November of 2022 just $514,662 in payments have come into county coffers, with just six accounts having made $27,216 in payments since February of this year. With past-due bills once again becoming due this month, Hayes said staff needed direction on how to proceed, noting there were more than 960 accounts past due, with a combined outstanding balance of $14.19 million.

First District Supervisor Rex Bohn kicked off the discussion at the board level, saying he didn't see any reason why the county couldn't suspend the cultivation tax entirely for another year, noting that some things may change in federal law, including farmers getting much-needed access to banking services and the reclassification of cannabis federally from a Schedule 1 controlled substance to Schedule 3.

"We could go another year without the tax," Bohn said. "Is that an option?"

Hayes said that was within the board's authority.

Before the rest of the board weighed in, Chair and Fifth District Supervisor Steve Madrone opened the matter up for public comment.

Frequent commentator Kent Sawatzky said he didn't have an issue with foregoing the tax for another year but did have a problem with the industry's past-due bill.

"The large amount of money that is owed to the county needs to be paid, no matter what the circumstances are," he said.

A commentor who identified himself as a farmer whose tax bills are paid in full asked the board to continue suspension of the "punitive tax" for another year, noting Measure A — a voter initiative that would overhaul the county's cannabis permitting process with what the industry feels would be devastating impacts for farms — has qualified for the March ballot, creating widespread uncertainty.

Ross Gordon, policy director for the Humboldt County Growers Alliance, said he, too, supported an additional year's suspension of the tax. He pointed to a survey of the alliance's farms last year that found 65 percent reported selling cannabis flower below the cost of production and noted that, with Measure A looming, farmers "really don't know about the viability of the industry."

When the conversation returned to the board, Bohn touched on the enforcement end of things, saying he worried the threat of revoking farmers' permits for unpaid tax bills might push some to the black market. That seemingly prompted Third District Supervisor Mike Wilson to ask Planning Director John Ford whether the county was "starting to get under water" in its management of the cannabis industry as a whole.

Ford said the system is designed to recover its own costs, meaning permit fees cover staff and the other costs of implementing the permitting system. But "not all applicants are paying their fees," he said, noting the county currently has $2.1 million in unpaid cannabis fees, only $200,000 of which is less than 30 days old.

Later in the meeting, Ford said the unpaid fees are really a separate matter and his department is working on bringing forward some strategies to address it at a future meeting.

Wilson said he felt it was important to honor the "intent of voters," which was to tax the cannabis industry to fund local services and Fourth District Supervisor Natalie Arroyo later echoed that sentiment, noting that voters approved the initiative by a two-to-one margin.

"I don't think we can fully defer over and over and over again, while still respecting the will of the voters," Arroyo said, "so finding a middle ground, I think, is what we have to do in this instance."

Madrone said just as cannabis farmers have the responsibility to balance their books to keep operations in the black, so does the county.

"And whether you know it or not, our budget this year is $17 million in the hole," Madrone said. "We took that out of reserves. We can't do that again."

Bohn then moved to "re-enact" Measure S at a rate of 10 percent — or 10 cents to 30 cents per square foot of cultivation space — and to direct staff to come back with options for enforcement mechanisms and payment plans. The motion passed unanimously without Bushnell, who'd recused herself from the discussion after the California Fair Political Practices Commission advised her last year that it felt her ownership of a cannabis farm constituted an economic interest in votes on Measure S implementation.

Hayes said staff will bring back a proposal that requires cultivators to establish payment plans for taxes owed by June, with permit suspension or revocation as possible consequences for failing to do so.

In other cannabis matters, the board heard a report from Ford about the status of existing cultivation permits in the county. Ford said his department approved a high of 352 permit applications in 2021, and the number has steadily declined annually since, with 77 applications approved to date this year.

But permit applications seem to have slowed to a trickle. Ford said his department has received only nine cultivation permits since September of 2022, with just three of those received since Jan. 1.

As it currently stands, the 1,020 active permits in the county allow cultivation of a combined 368.5 acres, Ford said, with 67 farms permitted to cultivate 1 acre or more of land, and 21 permitted for 2,000 square feet or fewer.

After a meandering conversation about potential cultivation permit caps or moratoriums, the county and state's handling of provisional permits, watershed carrying capacities and the potential impacts of Measure A, the board directed Ford to bring back a variety of options to modify existing cannabis regulations for a future discussion.

Thadeus Greenson (he/him) is the Journal's news editor. Reach him at (707) 442-1400, extension 321, or [email protected].

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Thadeus Greenson

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Thadeus Greenson is the news editor of the North Coast Journal.

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